Government Policies Pushing Towards Depression

Despite several quarters of rising GDP, and the upbeat exertions of Administration
spokespeople, the National Bureau of Economic Research (NBER) has yet to announce
the recession is over. Their reluctance is well-founded. It is beginning to
dawn on even the more optimistic analysts that the tepid growth we have seen
over the past three quarters is only an interlude in an otherwise grave and
prolonged recession. Moreover, the respite will cost dearly as the United States
has racked up a generation worth of debt for dubious benefit.

The paltry number of new jobs currently being created still fall far short
of the 375,000 per month needed to offset the 125,000 new entrants to the job
market due to population growth and to erode the 8 million people laid off
in the past year alone. Meanwhile, house prices continue to fall and credit
continues to contract. With retail sales dropping in June and the Leading Economic
Index (LEI) standing at minus 7.7 per cent, it should be clear that the US
economy is heading back towards recession, following a temporary distortion
created by some $1.3 trillion in federal stimulus. In short, the stimulus has
failed.

While there can be no doubt that an increase in government spending will result
in a boost to GDP figures, the evidence of history shows that such growth is
short-lived. Unfortunately as leaders around the world look to tighten the
reins on out of control spending, President Obama and his Democratic supporters
in Congress believe that their stimulus actions have succeeded and should be
redoubled. Armed with nothing more than faith in government and a belief that
spending is both a means and an end, it appears that the US stimulus policy
will continue. The net result of these efforts will not be a more vibrant economy,
but the perpetuation of fear and confusion in the business community and the
continuing expansion of deficits that will lead inevitably to higher taxes.

The more indebted an economy becomes, the greater the burden that must be
borne by the wealth-creating private sector. Indeed, at the present rate of
government debt-financing, the private sector will have to contribute some
$2 trillion each year in interest costs alone. This money must be raised by
taxation or inflation.

This week, in response to their fears of increased regulations, higher taxes,
and greater government stewardship of the economy, discontent among business
leaders flared into the open. Gathering in Washington, leaders of the US Chamber
of Commerce lashed out at current regulatory changes in healthcare. In other
forums, business executives and investors questioned the efficacy of the freshly
passed financial regulation bill.

Academic economists have identified a phenomenon they call 'fiscal drag.'
Their studies show that each dollar raised in taxation incurs a government
cost (tax collection and spending administration) or reverse multiplier.

The Administration estimates that the expiration of the Bush-era tax cuts
will raise additional revenues of some $1.5 trillion over the next decade.
In addition, some economists estimate that the Obama Health Act will raise
a further $500 billion over the same time period. Using the average reverse
multiplier of two, this additional taxation of $2 trillion will suck a further
$4 trillion out of the wealth-producing private sector by 2020, or some $400
billion each year.

By facing the stark reality of the above factors (as more and more clear thinking
individuals are), it becomes increasingly clear that a continuation of the
current Administration's policies will push America into a depression.

As America is still by far the largest international consumer, an American
depression would likely reshape the entire global economy. In a world where
a huge number of countries, businesses, and individuals are grossly indebted,
any sustained crash in asset values could be catastrophic. The dollar would
be threatened severely, leaving those who have invested in gold and silver
as financial survivors.

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John Browne is the Senior Economic Consultant for Euro Pacific
Capital, Inc. Mr. Brown is a distinguished former member of Britain's Parliament
who served on the Treasury Select Committee, as Chairman of the Conservative
Small Business Committee, and as a close associate of then-Prime Minister Margaret
Thatcher. Among his many notable assignments, John served as a principal advisor
to Mrs. Thatcher's government on issues related to the Soviet Union, and was
the first to convince Thatcher of the growing stature of then Agriculture Minister
Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously
pronounced that Gorbachev was a man the West "could do business with." A graduate
of the Royal Military Academy Sandhurst, Britain's version of West Point and
retired British army major, John served as a pilot, parachutist, and communications
specialist in the elite Grenadiers of the Royal Guard.

In addition to careers in British politics and the military,
John has a significant background, spanning some 37 years, in finance and business.
After graduating from the Harvard Business School, John joined the New York
firm of Morgan Stanley & Co as an investment banker. He has also worked
with such firms as Barclays Bank and Citigroup. During his career he has served
on the boards of numerous banks and international corporations, with a special
interest in venture capital. He is a frequent guest on CNBC's Kudlow & Co.
and the former editor of NewsMax Media's Financial Intelligence Report and
Moneynews.com. He holds FINRA series 7 & 63 licenses.